FRC appeals to US watchdog over auditor liability deals

The Financial Reporting Council has revealed that it is playing a leading
role in persuading the US financial watchdog to accept limited liability deals
for auditors.

UK audit firms currently cannot enter into such arrangements with clients who
are either dual-listed shares, or listed debt, in the US since it would
constitute a breach of US auditor-independence rules.

In an interview with Accountancy Age this week, FRC chief executive
Paul Boyle said an agreement was not yet in place with the US watchdog. ‘We’ve
been in discussions with the SEC on that’ those discussions are continuing.
Obviously, the SEC can’t come to a view until we finalise the guidance, so it’s
a bit premature,’ said Boyle.

Under the Companies Act, the UK profession may limit liability provided it is
approved by shareholders. The SEC is currently waiting for guidance from the FRC
on what limited liability clauses would look like. The guidance is expected
imminently.

PricewaterhouseCoopers’ head of professional affairs, Peter Wyman, said he
believed the SEC would come to accept that liability deals are with
shareholders, and not company directors. ‘A consequence of such a breach of
independence requirements would invalidate an audit, which would require a
company to have a new audit by another firm. The consequences are colossal,’ he
explained.

‘Since it also affects companies with US-listed debt, this would amount to
about half of the FTSE-100, and if half of the FTSE-100 can’t agree to these,
then my fear is that the other half won’t.

‘And if the FTSE-100 doesn’t, then it’s much more difficult for the next tier
down to do this’ it could all come to nothing,’ he said.
The SEC confirmed it had yet to reach a decision.